CHICAGO--(BUSINESS WIRE)--Link to Fitch Ratings' Report: The Annual Manual (U.S. Leveraged Finance
Fitch Ratings has published The Annual Manual, a primer covering the U.S. leveraged finance market.
Fitch's 'Annual Manual' seeks to quantify and summarize the major factors driving risk and opportunities for market participants in the leveraged finance sector. The report combines analysis across Fitch's U.S. Corporates, Financial Institutions (alternative asset managers), Structured Credit (CLOs), and Fund and Asset Managers.
Historically, the business, credit and commodity cycles have rarely been synchronized. Despite this, they have often been logically sequenced and have signaled a similar message to observers. These cycles are currently sending mixed signals, however.
The business cycle has not gained the type of momentum that would be expected this deep into the economic recovery. The commodity cycle has clearly signalled it is at its trough over the past year. Credit cycle deterioration tends to follow periods of unsustainable economic growth, and exuberant management and market expectations. In the current environment, Fitch believes the credit cycle is advanced relative to the business cycle.
Fitch does not expect new deal characteristics to return to the leverage or transaction size levels of 2006/2007. It is likely a downturn could occur without seeing those types of large, highly leveraged deals. It is also likely that a recession could occur without the business environment ever returning to full steam. Idiosyncratic risk will remain a focus in non-commodity sectors.
As the commodity risks shake out and capital begins flowing again in the leveraged finance space, Fitch anticipates discretionary risks to build again with private equity and management teams gaining confidence, and taking advantage of historically low, albeit slowly rising, interest rates. Fitch will continue to evaluate the overall use proceeds mix (refinancing, LBO, M&A) for new issuance; any elevated new transaction levels; and the structure, leverage and size of those transactions.
The full fifth edition of the 'Annual Manual' is available at 'www.fitchratings.com.' or by clicking on the link above. Fitch's Leveraged Finance team will continue to publish this report in the first half of the year and welcomes market feedback.
Additional information is available at 'www.fitchratings.com'.